Noyes Foundation: Investment Policy

Jessie Smith Noyes Foundation Investment Policy

Statement of Fiduciary Responsibility
We recognize that our fiduciary responsibility does not end with maximizing return and minimizing risk.

We also recognize that economic growth can come at considerable cost to communities and the environment.

We believe that efforts to mitigate environmental degradation, address issues of social justice and promote healthy communities should be incorporated as part of business and investment decision making. We believe that management, directors, employees and investors should consider these social issues in the pursuit of financial objectives.

We believe that in light of the social, environmental and economic challenges of our time, fiduciary responsibility in the coming decades will dictate the integration of prudent financial management practices with principles of environmental stewardship, concern for community, and corporate accountability to shareholders and stakeholders alike.

We believe that foundations have a particular role to play in this process, seeing their mission not only in terms of the uses of income to fund programs, but also in terms of the ends toward which endowment assets are managed. We believe that it is essential to reduce the dissonance between philanthropic mission and endowment management.

Investment Philosophy
In concert with the Foundation’s mission to protect and restore Earth’s natural systems and promote a sustainable society by strengthening individuals, institutions and communities pledged to pursuing those goals, we seek, where possible, to invest our endowment assets in companies that:

provide commercial solutions to major social and environmental problems; and/or
build corporate culture with concerns for environmental impact, equity and community.

The Foundation will look at

the environmental impact of a business by its use of materials, generation of waste, and the goods it produces or services it provides
issues of equity within a corporation, particularly with regard to participatory management, employee ownership, salary structures, workforce diversity, employee benefit programs or other demonstrated commitments to the well–being of all individuals involved in an enterprise
a corporation’s openness and accountability to all stakeholders, its local job creation especially for the economically disadvantaged, its corporate giving to and active involvement with community organizations, or its other initiatives that provide net benefits to the local economy.

Spending and Investment Goals
The spending and investment goals of the foundation are:

to generate income and capital gains necessary to support the foundation's operations and fund its grantmaking over the long-term

to provide capital directly to or own the equity or debt of enterprises which further the foundation's mission

to avoid investing in companies whose environmental or social impacts contribute to the issues that the foundation's grant-making seeks to address

to set spending levels based primarily on an assessment of current need and of current and projected investment returns

to preserve, to the extent possible consistent with the foundation's spending levels, the real (inflation adjusted) value of its assets over the long term.

The Board of Directors has determined that the Foundation should be viewed as a perpetual institution. Therefore, investments that have the potential to generate substantial and long-term total returns that offset inflation will be important to pursue.

Investment Guidelines
Investment guidelines are based on a 20-year horizon. Interim performance will be monitored as appropriate.

Appreciation and income may be used to finance cash requirements for grants and operating expenses. Assets may be spent down during periods in which neither appreciation nor income are sufficient to fund grantmaking budgets.

The Foundation's assets will be managed by professional money managers that are selected by the Finance Committee. Assets are allocated in accordance with guidelines set forth by the Finance Committee and approved by the Board. Investment managers have discretion to manage the assets in each particular portfolio to best achieve investment objectives and requirements consistent with the social and financial guidelines set forth in the Foundation's Investment Policy. Managers will be monitored on a regular basis.

The managers are responsible to:

exercise a high degree of professional care, skill, prudence and diligence in the management of assets under their direction

perform thorough professional analysis and judgment with respect to all investments held in the account

select and dispose of individual securities and related matters

diversify securities by issuer, industry, geography, type, and maturity of investments, etc.

fully comply with all provisions of any governmental regulations and decisions thereunder dealing with the management and investment of foundations

cooperate with the Foundation on shareholder activities

Asset Allocation
Assets will be diversified both by asset class (domestic equities, foreign equities, fixed income, venture capital, private placements and real estate) and within each asset class.

Foreign debt and equity securities may include an allocation to emerging market countries. Emerging market securities are defined as those issued by companies based in any except the following countries: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom, and the United States.

The emerging market allocation may be accomplished via the hiring of managers specializing in emerging markets investing or through an allocation within broad foreign portfolios.

Emerging market debt securities should not exceed 20% of the market value of total foreign debt securities. Emerging market equity securities should not exceed 20% of the market value of total emerging market equity securities.

The Foundation does not currently invest in foreign debt securities.

Asset allocation will fall within the following ranges:

Equities
50% to 70%
Fixed Income
20% to 30%
Alternative Investments
5% to 20%

Screening
The Jessie Smith Noyes Foundation views its investments as an integrated component of its overall mission. Investments are based on sound, professional financial analysis and filtered through screens consistent with and in support of the Foundation’s values and mission. Exclusionary screens guide managers on companies to avoid and inclusionary screens guide managers on companies in which to invest.

The Foundation’s domestic and international equity and fixed income asset classes, held in separate accounts, are managed by investment managers, who use financial analysis and social and environmental screens that match or are greater than those described in this policy.

The Foundation also utilizes socially screened mutual funds. Investments in mutual funds are made even if all of the Foundation’s screens are not addressed, provided that the overall orientation of such funds is consistent with the Foundation’s mission and values.

Managers are free to choose the sources of data needed to apply the screens. Among the firms doing social investment research are: KLD Research and Analytics, Inc., Institutional Shareholders Services, Investor Responsibility Research Center and Innovest Strategic Value Advisors. Additional sources include reports and information provided by government agencies and advocacy groups and stories found in general, business and trade media. Managers are encouraged to consult with the Foundation if there are questions regarding the screens.

In certain cases, shares may be owned in a company that is incompatible with the Foundation’s mission. This provides the Foundation with the option of engaging as an active shareholder with that company.

In order to avail itself of a full spectrum of investment diversification, the Foundation may invest in asset classes where screening is limited or unavailable, including hedge/absolute return funds, venture capital and real estate. To the extent possible, the Foundation will seek to identify and consider managers in these asset classes who include screening in their investment processes and/or ensure that such investments are benign in relation to the Foundation’s mission.

The Foundation will review the relationship between financial returns and the impact of screening at least once every three years.

Screening wil be employed as follows:

TOXIC EMISSIONS, EXTRACTIVE INDUSTRIES & ENVIRONMENTAL JUSTICE

Exclusionary Screens:

Companies that own and/or operate nuclear power plants.
Companies that rank among the top ten on the most current Toxic 100, a list of the largest corporate emitters of toxics in the U.S. compiled by the Political Economy Research Institute at the University of Massachusetts.
Companies that derive a significant portion of their revenue from mountaintop removal mining.
Companies that consistently target Indigenous lands for:
1. mining and extraction of coal, oil, natural gas or other minerals;
2. storage and disposal of nuclear wastes
3. dumping and disposal of hazardous and toxic wastes.
Companies that have a pattern of violations of federal and state environmental laws and regulations or recently paid substantial fines or penalties or were sanctioned for such violations.

Inclusionary Screens:

Companies that demonstrate a commitment to the environment either by signing the CERES Principles (Coalition for Environmentally Responsible Economies), by participating in recognized environmental programs such as the Business Environmental Leadership Council of the Pew Center on Global Climate Change or by issuing sustainability reports in line with the Global Reporting Initiative.
Companies that have a comprehensive and effective environmental policy that seeks to reduce any adverse environmental impacts through: (a) pollution prevention practices, (b) utilization of recycled products as raw materials, (c) practices that embrace and advance sustainable development, or (d) a demonstrated commitment to cleaning up waste derived from historical operations.
Companies that have significantly reduced toxic emissions relative to emission reductions by industry peers.

SUSTAINABLE AGRICULTURAL AND FOOD SYSTEMS

Exclusionary Screens:

Companies that are significant producers of synthetic pesticides and fertilizers.
Companies that are significant producers of genetically engineered seeds, fish or animals and/or recombinant bovine growth hormone (rBGH/rbST),
Companies that derive a significant portion of their revenue from the ownership of industrial agricultural operations and/or confined animal feeding operations.

Inclusionary Screens:

Companies that avoid using genetically modified organisms (GMOs) in the manufacturing of food products and/or label such products at the point of sale as containing GMOs.
Companies that produce, distribute and/or sell organic food products.
Companies that procure, utilize and/or sell locally and regionally sourced agricultural goods and products, particularly from family operated farms.
Companies that have a record of negotiating in a fair and transparent manner with workers and production contractors.

REPRODUCTIVE HEALTH AND RIGHTS

Exclusionary Screens:

Companies whose practices, actions and positions are contrary to or limit a woman’s reproductive choices.

Inclusionary Screens:

Companies that facilitate quality and accessible reproductive healthcare by providing reproductive services, products and/or insurance to their employees and/or to the general public.
Companies that have publicly demonstrated support for pro-choice organizations.

A SUSTAINABLE AND SOCIALLY JUST SOCIETY

Exclusionary Screens:

Companies that manufacture tobacco or tobacco products.
Companies that have paid significant penalties for violating occupational health and safety laws and regulations and/or have been continuously cited as having major workplace health and safety issues.
Companies that repeatedly have violated affirmative action standards, practiced discriminatory labor practices based on disability, gender, age, race, religion or sexual orientation, or engaged in anti-union activities.
Companies that have significant operations in countries with repressive regimes where internationally recognized human rights organizations have documented a pattern of human rights abuses and that have resisted shareholder initiatives to sign codes of conduct or to divest operations in such countries. [Note: Specific countries and companies will be reviewed on a periodic basis and that information will be shared with investment managers.]
Companies that produce small firearms for personal use.

Inclusionary Screens:

Companies that have a demonstrated record of women and people of color serving on their boards of directors and in the top two levels of management.
Companies with hiring practices and supportive environments that foster diversity and inclusiveness and/or are included on lists like Fortune magazine’s 50 Best Companies for Minorities and Working Mother magazine’s 100 Best Companies for Working Mothers.
Companies that support the construction of and/or provide financing and mortgages for affordable and low-income housing.
Companies with demonstrated leadership on charitable giving, innovative approaches to community development, environmentally friendly building designs and excellence in the public education system.
Companies that purchase goods and services from minority and women owned businesses and actively promote contract opportunities for minority and women owned suppliers and service providers.
Companies whose labor practices and compensation standards support collective bargaining, living wage and pay equity.

Proxy Voting Guidelines
We believe that passive holding of corporate stocks without assessment of the social and environmental, as well as the financial performance of a corporation does not fulfill our obligation as a shareholder.

The Foundation asks each of our managers, the Interfaith Center on Corporate Responsibility (ICCR) and the Council of Institutional Investors (CII) to inform us of shareholder resolutions being considered with corporations in which we hold stock.

The Foundation votes its proxies as follows:

When program interests are directly involved, proxies are voted in a manner consistent with them.
When a shareholder resolution deals with a social or environmental issue that is not directly related to the Foundation's program interests, the Foundation will review each individual case and consult with our grantees, managers and others, as appropriate.

On issues of corporate governance the Foundation will consult with ICCR, CII, and others, and will vote our proxies according to the following general guidelines:

Ratify Auditors
Ratify Directors unless governance or a program interest issue has been raised or there is a lack of diversity on the board
Vote against golden parachutes for executives
Vote for proposals requiring a majority of independent directors
Vote for proposals requiring nominating and/or compensation committees to be composed exclusively of independent directors
Vote against incentive payments not related to financial performance
Vote for incentive payments that are tied to social and environmental performance
Vote for proposals recognizing the standing of stakeholders other than shareholders in governance and control.

Monitoring
The Finance Committee will monitor the performance of the Foundation's managers on a quarterly basis, with a face-to-face meeting scheduled at regular intervals.

Issues to be addressed include:

Year-to-date and cumulative performance in terms of our screened portfolio as against other screened and non-screened portfolios under management, in comparison to relevant indexes and in relation to the performance of other foundations
Social research and interactions with portfolio companies including shareholder activities;
Adherence to the Foundation's screens and values
Transactions and transaction costs
Market capitalization, portfolio balancing and holdings overlap among managers and systematic risk (beta) and standard deviation (sigma) for each portfolio.

Performance Standards
Following are the benchmarks against which the Foundation’s long-term investment performance is measured. For total Foundation assets and for each asset class a peer group universe benchmark and market index benchmark has been established. It is expected that the aggregate fund and the individual managers will meet or exceed these performance standards on the following bases:

Absolute returns should exceed both benchmarks on a three- and five-year rolling basis
Risk, as measured by the annualized standard deviation of quarterly returns, should be less than that of the market index over the same three- and five-year rolling periods. Higher volatility is acceptable if the risk-adjusted return, as measured by the Sharpe ratio, is greater than that of the market index.

The peer group manager universe benchmarks are to be composed of professionally managed institutional managers for the Foundation’s separate and collective account managers and mutual funds for the Foundation’s mutual fund managers. Peer group universes are currently provided by William M. Mercer Investment Consulting, Inc. for separate accounts and Morningstar, Inc. for mutual funds. The market index benchmarks were established in light of the Foundation's financial objectives and long-term expectations for the capital markets and inflation.

Benchmarks

Asset	Peer Group Universe	Market Index
Total Foundation	Endowment/Foundation Universe	N/A
	Blended Target Universe: 48% Equity -- 10% International 28% US Large Cap 10% US Small Cap 25% Fixed Income - Core 12% Venture Capital - US Equity Combined 15% Hedge Funds - US Equity Combined	Blended Target Index: 10% MSCI EAFE (Net) Index 28% S&P 500 Index 10% Russell 2000 Index 24% Lehman Bros. Aggregate Bond Index 1% US 91-Day T-Bills Index 27% Wilshire 5000 Index
Fixed Income	Core Fixed Income Universe	95% Lehman Bros. Aggregate Bond Index 5% US 91 Day-T Bills Index
Domestic Equity: Large Cap Growth Small Cap	Large Cap Growth Equity Universe Small Cap Equity Universe	Domini 400 Social Index, S&P 500 Index, Russell 2000 Growth Index, Russell 2000 Value Index
International Equity	International Equity Universe	MSCI EAFE (Net) Dividend Index
Alternative Investments	N/A	HFRI Fund of Funds Index CSFB/Tremont Hedge Fund Index

Manager Review and Termination
Investment funds may be placed on "watch" status, replaced or terminated whenever the Finance Committee loses confidence in the management of the fund, when the characteristics of the fund are no longer consistent with the fund's intended role, or the current style is no longer deemed appropriate.

Following are some examples of reasons that may cause the Committee to lose confidence in a fund:

Change in organizational structure or personnel
A significant change in culture through a merger or acquisition that is likely to distort incentives and promote turnover, or if the investment team leaves the firm.

Changes in strategy
If the fund departs from the strategy and/or style that it was originally hired to implement.
Performance
Continued performance shortfalls versus a peer group of funds with a similar style and/or a market index. Performance should be evaluated over at least a three-year period to provide fund management sufficient time to execute its strategy over full market cycles.

The Investment Consultant will provide recommendations relating to the investment funds, which may fall into any one of the following three categories:

Retain
The Investment Consultant has confidence in the fund's ability to add value in the future. The fund's investment performance is satisfactory and there are no organizational and strategy issues of significant concern.
Place on Watch
The fund's investment performance is not satisfactory and/or issues relating to the organization or strategy are of concern.
Terminate
The Investment Consultant does not have confidence in the fund's ability to add value over a benchmark in the future. In addition, the Investment Consultant may recommend the termination of a fund if there are significant concerns relating to the organization or strategy. If the investment strategy and/or objectives of the Foundation changes, the Committee may terminate a fund that is not managed in a manner consistent with the Foundation's new strategy/objectives.

The Finance Committee will review the Investment Consultant's recommendation to either place an investment fund on watch or terminate a relationship. Funds will generally be placed on watch status for a period of time before a decision to terminate the relationship is made. There may be, however, circumstances under which the Committee may determine to terminate a fund without placing it on watch first.

A fund may be placed on watch after consideration is given to the following factors:

The fund's strategy or portfolio characteristics no longer fit the desired portfolio structure.

A fund that under performs both the median in the peer universe and market index over the most recent three-year period.

A fund may also be placed on watch within a lesser period if performance deviates from the universe and benchmark dramatically and in a manner that would not have been expected given the tracking error expectations of the strategy

Any known gross negligence, willful misconduct, or breach of federal and state securities laws

The Investment Consultant and Committee's conclusion for any other reason that a heightened review of the fund is warranted.

The watch period may be established for as many as three quarters, for a maximum one-year total watch duration.

Within one quarter from the time a fund is placed on watch, the Committee may interview a representative of the fund company to determine if performance is suitably explainable and may continue to watch performance over the remainder of the three quarters watch-period.

If at the end of the watch-period, performance has improved to above-benchmark or above-median over a market cycle, the fund may be removed from the watch list.

If at the end of the watch period the fund is under-performing both objectives, (in effect, four consecutive rolling time periods of non-compliance) the Committee may:

Immediately terminate the fund Begin a search for a replacement fund and extend the watch period
Interview the fund company again to determine if performance is suitably explainable and an upward trend in relative performance has developed, or is expected, and continue the watch-period for some specified number of quarters.

Other Considerations:

The Committee may also consider the impact of the fund's style and that style cycles can persist for periods longer than three years;

Consistency of performance as represented by rolling three-year performance versus benchmarks and peer groups will be considered. The Committee may also consider a fund's pattern of past performance in various markets in applying criteria for watch and termination

Risk-adjusted returns as represented by the information ratio, relative to an appropriate peer group may be considered in addition to absolute performance.

Conclusion
The Noyes Foundation set out to reduce the dissonance between its grantmaking values and asset management beginning in 1993. Since then we have learned much. We are pleased to share our experience with other foundations that share our concerns for dissonance reduction, and to learn what they are doing, as well. Each year we will report our progress in the Annual Report.

Approved by the Board, January 1997.
Revised by the Board, March 2001, July 2003, November 2004 & November 2005